A NAFTA Chapter 19 Compromise

Canadian negotiators are meeting with U.S. negotiators today, to see if they can build on the U.S. - Mexico deal and finalize a new NAFTA. One key issue will be Chapter 19: The U.S. wants it out, while the Canadians want to keep it. Here's something I wrote on this issue last year:

One of the most contentious issues in the ongoing NAFTA renegotiation is the Chapter 19 dispute process.

Chapter 19 provides for a special NAFTA "panel" of experts to conduct a quasi-judicial review of government agency determinations on anti-dumping and countervailing duties, which involve extra tariffs imposed on the basis of allegedly "unfair" trade behavior (subsidies and "unfair" pricing).

The United States wants to eliminate the Chapter 19 process; Canada and Mexico want to keep it. With positions so far apart, it is hard to see a middle ground. However, by examining closely the problem Chapter 19 seeks to address, it may be possible to work out a compromise that could satisfy both sides.

Determinations on anti-dumping and countervailing duties are made by specialized government agencies (in the United States, the Department of Commerce and the International Trade Commission), and these agency determinations are then subject to appeal in domestic courts.

While the agencies themselves have been accused of bias toward the domestic industry, Chapter 19 does not address this issue directly. Rather, Chapter 19 acts as a substitute for the domestic court appeals.

The Chapter 19 process originated in response to concerns by Canada that U.S. courts were biased, lacked expertise and took too long to rule. To address this problem, the Canada-U.S. Free Trade Agreement established a binational panel of experts that can take the place of domestic court review of these agency decisions.

With Chapter 19 in place, Canadian respondents could either go to U.S. courts or to a panel to challenge U.S. agency decisions, and U.S. respondents could either go to Canadian courts or to a panel to challenge Canadian agency decisions.

Chapter 19 was carried over into the NAFTA when it came into force in 1994 and now applies to anti-dumping and countervailing duty proceedings that take place between any two NAFTA signatories.

Certain U.S. industries have complained about this process for years, asserting, among other things, that the Chapter 19 panels are biased. Now, with the NAFTA renegotiation, they have found an opportunity to call for its removal.

In response, Canadian business groups have defended it as necessary to get proper treatment in litigation over U.S. anti-dumping and countervailing duties, and others have suggested it is needed for the same reason in Mexico.

Regardless of whether Chapter 19 was justified initially, a long time has passed since then, and it is worth examining whether the original problems Canada sought to address still exist. With that in mind, the parties could commit to two related items as part of the NAFTA renegotiation.

First, they could do a thorough investigation of how Canadian, Mexican and U.S. courts have been carrying out their review of anti-dumping and countervailing duty determinations (and compare those reviews to the Chapter 19 ones).

Canada's concerns about court reviews stem from the 1980s, but the current situation is unclear. These courts are still hearing appeals of determinations related to all other countries, so there is plenty of material to look at.

In this regard, a commission of experts from all three countries could study a number of items: the outcomes of domestic court reviews; the quality of these courts' reasoning; and the timeliness of the decisions. This would provide an evidentiary basis for evaluating the Chapter 19 process, to see if it is still needed.

The commission could make recommendations for improvements to the domestic court review process, including related to judges' training in this specialized area. If there is a problem with domestic courts, the ideal solution would be to fix that problem for all countries, rather than to bypass the process for just a couple of them.

Second, the parties could plan for the possible expiration of Chapter 19 after a defined period of time (five or 10 years is reasonable). This expiration could happen automatically, or it could be tied to the expert commission's report.

For example, upon the issuance of the report, Chapter 19 could be set to expire unless all three NAFTA parties voted to keep it; or each party could be given the ability to opt out.

It is also worth emphasizing that the real problem with anti-dumping and countervailing duties may be the underlying statutes and regulations, rather than domestic courts. A review of the policies set out there, and the agencies' application of them, may be the most productive course of action.

In this regard, Article 1907 of the Canada-U.S. Free Trade Agreement provided for the establishment of a working group that would develop a substitute system for dealing with "unfair" pricing and government subsidies.

In other words, it was intended to take on the problems more directly than the binational panel system did. As part of the NAFTA renegotiation, this idea could be revived and the working group reconstituted.

The proposal above tries to balance out the concerns on both sides. Chapter 19 is an issue where all three countries feel strongly, but in order to conclude the NAFTA renegotiation, some kind of compromise will be necessary.

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A NAFTA Chapter 19 Compromise

Canadian negotiators are meeting with U.S. negotiators today, to see if they can build on the U.S. - Mexico deal and finalize a new NAFTA. One key issue will be Chapter 19: The U.S. wants it out, while the Canadians want to keep it. Here's something I wrote on this issue last year:

One of the most contentious issues in the ongoing NAFTA renegotiation is the Chapter 19 dispute process.

Chapter 19 provides for a special NAFTA "panel" of experts to conduct a quasi-judicial review of government agency determinations on anti-dumping and countervailing duties, which involve extra tariffs imposed on the basis of allegedly "unfair" trade behavior (subsidies and "unfair" pricing).

The United States wants to eliminate the Chapter 19 process; Canada and Mexico want to keep it. With positions so far apart, it is hard to see a middle ground. However, by examining closely the problem Chapter 19 seeks to address, it may be possible to work out a compromise that could satisfy both sides.

Determinations on anti-dumping and countervailing duties are made by specialized government agencies (in the United States, the Department of Commerce and the International Trade Commission), and these agency determinations are then subject to appeal in domestic courts.

While the agencies themselves have been accused of bias toward the domestic industry, Chapter 19 does not address this issue directly. Rather, Chapter 19 acts as a substitute for the domestic court appeals.

The Chapter 19 process originated in response to concerns by Canada that U.S. courts were biased, lacked expertise and took too long to rule. To address this problem, the Canada-U.S. Free Trade Agreement established a binational panel of experts that can take the place of domestic court review of these agency decisions.

With Chapter 19 in place, Canadian respondents could either go to U.S. courts or to a panel to challenge U.S. agency decisions, and U.S. respondents could either go to Canadian courts or to a panel to challenge Canadian agency decisions.

Chapter 19 was carried over into the NAFTA when it came into force in 1994 and now applies to anti-dumping and countervailing duty proceedings that take place between any two NAFTA signatories.

Certain U.S. industries have complained about this process for years, asserting, among other things, that the Chapter 19 panels are biased. Now, with the NAFTA renegotiation, they have found an opportunity to call for its removal.

In response, Canadian business groups have defended it as necessary to get proper treatment in litigation over U.S. anti-dumping and countervailing duties, and others have suggested it is needed for the same reason in Mexico.

Regardless of whether Chapter 19 was justified initially, a long time has passed since then, and it is worth examining whether the original problems Canada sought to address still exist. With that in mind, the parties could commit to two related items as part of the NAFTA renegotiation.

First, they could do a thorough investigation of how Canadian, Mexican and U.S. courts have been carrying out their review of anti-dumping and countervailing duty determinations (and compare those reviews to the Chapter 19 ones).

Canada's concerns about court reviews stem from the 1980s, but the current situation is unclear. These courts are still hearing appeals of determinations related to all other countries, so there is plenty of material to look at.

In this regard, a commission of experts from all three countries could study a number of items: the outcomes of domestic court reviews; the quality of these courts' reasoning; and the timeliness of the decisions. This would provide an evidentiary basis for evaluating the Chapter 19 process, to see if it is still needed.

The commission could make recommendations for improvements to the domestic court review process, including related to judges' training in this specialized area. If there is a problem with domestic courts, the ideal solution would be to fix that problem for all countries, rather than to bypass the process for just a couple of them.

Second, the parties could plan for the possible expiration of Chapter 19 after a defined period of time (five or 10 years is reasonable). This expiration could happen automatically, or it could be tied to the expert commission's report.

For example, upon the issuance of the report, Chapter 19 could be set to expire unless all three NAFTA parties voted to keep it; or each party could be given the ability to opt out.

It is also worth emphasizing that the real problem with anti-dumping and countervailing duties may be the underlying statutes and regulations, rather than domestic courts. A review of the policies set out there, and the agencies' application of them, may be the most productive course of action.

In this regard, Article 1907 of the Canada-U.S. Free Trade Agreement provided for the establishment of a working group that would develop a substitute system for dealing with "unfair" pricing and government subsidies.

In other words, it was intended to take on the problems more directly than the binational panel system did. As part of the NAFTA renegotiation, this idea could be revived and the working group reconstituted.

The proposal above tries to balance out the concerns on both sides. Chapter 19 is an issue where all three countries feel strongly, but in order to conclude the NAFTA renegotiation, some kind of compromise will be necessary.